PUBLIC
DOCUMENT OF THE EUROPEAN BANK
FOR RECONSTRUCTION AND DEVELOPMENT
STRATEGY FOR
BULGARIA
As approved by the Board of Directors at its meeting on 8 July 2015
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TABLE OF CONTENTS
EXECUTIVE SUMMARY
1.
OVERVIEW OF THE BANK’S ACTIVITIES TO DATE ......................................... 3
1.1 THE BANK’S CURRENT PORTFOLIO .................................................................................... 3
1.2 IMPLEMENTATION OF THE PREVIOUS STRATEGIC DIRECTIONS ........................................... 3
1.3. LESSONS LEARNT ............................................................................................................. 6
2.
OPERATIONAL ENVIRONMENT .............................................................................. 6
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3.
POLITICAL CONTEXT....................................................................................................... 7
MACROECONOMIC CONTEXT ........................................................................................... 7
STRUCTURAL REFORM CONTEXT ..................................................................................... 8
BUSINESS ENVIRONMENT AND LEGAL CONTEXT.............................................................. 8
ACCESS TO CAPITAL ........................................................................................................ 9
SOCIAL CONTEXT .......................................................................................................... 12
ENERGY EFFICIENCY AND CLIMATE CHANGE CONTEXT ................................................. 12
STRATEGIC ORIENTATIONS .................................................................................. 13
3.1
3.2
3.3
3.4
3.5
STRATEGIC DIRECTIONS ............................................................................................... 13
KEY CHALLENGES AND BANK ACTIVITIES ..................................................................... 14
POTENTIAL RISKS TO COUNTRY STRATEGY IMPLEMENTATION ..................................... 25
ENVIRONMENTAL AND SOCIAL IMPLICATIONS OF BANK PROPOSED ACTIVITIES .......... 25
COOPERATION WITH THE EU AND OTHER MDBS AND DONORS .................................... 26
ANNEX 1 – POLITICAL ASSESSMENT .......................................................................... 28
ANNEX 2 – SELECTED ECONOMIC INDICATORS .................................................... 34
ANNEX 3 - ASSESSMENT OF TRANSITION CHALLENGES ..................................... 35
ANNEX 5 – LEGAL TRANSITION .................................................................................... 38
ANNEX 6 – EBRD AND THE DONOR COMMUNITY ................................................... 42
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EXECUTIVE SUMMARY
Bulgaria is committed to and applying the principles of multiparty democracy, pluralism and
market economics in accordance with the conditions specified in Article 1 of the Agreement
Establishing the Bank.
Bulgaria’s entry into the EU in 2007 followed a sustained period of reforms, strong economic
growth, and increasing integration into European and global markets. Since then, however,
the country has been buffeted by the global economic crisis in 2008/09 and the subsequent
Eurozone crisis, compounded more recently by a period of political instability. Several years
of recession or anaemic growth have been accompanied by higher unemployment, lower
investment and increasing regional disparities. In this environment, progress in transition has
been much more hesitant than in the run-up to EU accession and has even reversed in some
cases. This has made it more difficult for the Bank to utilise its financing to promote reforms,
especially at state and municipal levels, while demand for Bank funding in the corporate and
financial sectors has also been subdued due to the overall economic situation and lower levels
of investment. Notwithstanding Bulgaria’s status as an EU member and the advanced state of
reforms in many areas, the country still faces significant reform challenges in the years to
come.
In this context, the overarching goal of the Bank’s activities in the forthcoming Strategy
period in Bulgaria will be to create a new impetus for reforms in order to support growth
through investment and policy dialogue and re-energise transition. The Bank will pursue this
objective in the following ways:

Enhancing competitiveness through improved efficiency, governance and
innovation: Although corporate governance and business standards have
improved since accession to the EU in 2007, there remain large opportunities to
bring skills, governance and management practices closer to international
standards. Conditions for doing business in Bulgaria have improved in several
respects over recent years, but issues clearly remain which hinder investment.
Competitiveness of Bulgarian firms is also impacted by the small-scale nature of
operations in key sectors. Given the above issues, the Bank will support financial
restructurings and provide long term finance for competitiveness enhancement,
and energy efficiency investments. The Bank will also support regional economic
integration by providing financing for cross-border investments and exports. For
smaller companies, the Bank will work with and through financial intermediaries
to ensure sufficient access to funds and explore expanding its business advisory
activities provided adequate resources can be identified. Finally, on a national
level, targeted advisory assignments will address obstacles to doing business.

Strengthen the financial sector intermediation through targeted investments
and improved governance: Profitability has fallen across the banking sector and
consolidation in the sector may be necessary. Following the recent closure of
Corporate Commercial Bank, the National Bank and the Government have started
work on a number of initiatives – independently and jointly with international
partners – which are designed to fully restore public confidence to the sector.
They have also signalled their intention to opt-in into the Single Supervisory
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Mechanism (SSM) where the ECB is the direct supervisor of major cross border
banks. Given the high level of liquidity in Bulgarian commercial banks at present,
the Bank will explore risk sharing products or products blended with grant
resources, in order to support overall intermediation and in particular MSME
development. It will also support sector consolidation where needed, and help
address the issue of high NPLs. The Bank will also seek to support the deposit
insurance fund with a combination of investment and policy dialogue.

Narrowing the infrastructure gap through commercialisation, reform and
efficiency: Years of underinvestment and limited private sector involvement have
led to deteriorated quality of municipal and national infrastructure. In particular,
municipalities and state agencies need to strengthen technical skills in planning,
procurement and project management in order to benefit from available funding.
Gas transportation and storage facilities, which are key to the country’s, as well as
regional, energy security, would benefit from expanded commercialisation and
investment. The energy system operates in an unsustainable fashion. End-user
tariffs are below production costs which inhibits long-term investments. The
country remains the least energy efficient economy in the EU and the current
energy policies do not provide a framework conducive to investments in the
sector. Given the above issues, the Bank will seek to support commercialisation
and private sector participation in transport and gas infrastructure, as well as at the
municipal level. The Bank will work with the authorities to facilitate leveraging of
available EU structural funds through newly designed financial instruments with
clear linkage to transition considerations. In the energy sector, the Bank is ready
to renew its dialogue with the authorities with the view to support the
development and implementation of a long-term energy strategy, including
strengthening the regulator and reviewing tariff policies, and subsequently would
provide investments to support public utilities financial and operational
performance, while continuing energy efficiency investment across the economy.
Through these three strategic priorities, the proposed Country Strategy operationalises the
Bank’s Medium-Term Directions in the specific context of Bulgaria’s transition challenges.
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1. OVERVIEW OF THE BANK’S ACTIVITIES TO DATE
1.1 The Bank’s current portfolio
In the strategy period1, the Bank signed 55 new transactions involving Bank financing of
approximately Euro 535 million. The Bank has been most active in this period in providing
financing for private corporates and the banking sector, with a limited involvement vis-a-vis
municipalities. During the period, the portfolio has declined from Euro 1.3 billion to Euro 1.1
billion and operating assets have fallen as well. Annual volumes of investment have varied
between Euro 80 million and Euro 250 million.
EBRD Portfolio at end May 2015
Sector Group
Energy
Financial
Institutions
Industry,
Commerce &
Agribusiness
Infrastructure
Summary
Sector Team
Private sector share: 88 per cent
Portfolio
no of
operations
Portfolio
(€m)
%
Portfolio
Op
Assets
% Op
Assets
Natural Resources
4
74
8%
56
7%
Power and Energy
6
207
21%
187
23%
10
281
29%
243
30%
Depository Credit (banks)
Insurance, Pension, Mutual
Funds
Leasing Finance
Non-depository Credit (nonbank)
13
122
13%
98
12%
1
3
0%
2
0%
3
14
1%
14
2%
4
5
0%
5
1%
21
143
15%
117
14%
Agribusiness
8
116
12%
106
13%
Equity Funds
28
101
10%
66
8%
ICT
3
27
3%
24
3%
Manufacturing & Services
8
151
16%
151
19%
Property and Tourism
5
36
4%
35
4%
52
432
44%
382
47%
15
117
12%
74
9%
Municipal & Env Inf
Transport
0
0
0%
0
0%
15
117
12%
74
9%
98
973
100%
816
100%
1.2 Implementation of the previous strategic directions
The last Country Strategy for Bulgaria (approved on 8 November 2011) stipulated the
following priorities:




Restructuring the power sector and increasing energy efficiency;
Increasing competitiveness of Bulgarian firms;
Strengthening infrastructure service provision;
Supporting financial markets and deepening financial intermediation.
1
EBRD Country Strategy was approved in November 2011. In 2010, as part of its crisis response, EBRD
invested Euro 546 million, with a significant share devoted to financial sector activities.
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In H2 2012 via a mid-year Country Strategy Update, the Bank amended the priorities in light
of a Government request to abstain from further investments in renewable energy.
In spite of intermittent headwind impacting Strategy implementation, the Bank was able to
achieve good results in some of the priority areas, particularly through its corporate and
financial sector activities. Key achievements included:



The Bank’s support to commercial banks helped them maintain adequate levels of
lending despite pressure on parent banks to de-leverage and an overall subdued risk
appetite in the financial sector. In the early period, the Bank was disbursing under
significant facilities which were signed as part of the Bank’s crisis response/Vienna
Initiative. After 2011, the Bank further focused its activities on energy efficiency,
through various Sustainable Energy Finance Facilities (SEFFs), aiming to build capacity
on residential and SME energy efficiency lending by introducing a streamlined approach
for smaller investments. The Bank also allowed to expand and develop the market for
energy audits and energy efficiency-related technical studies on a sustainable basis.
SEFFs reached more than 500 industrial clients and more than 47,000 residential clients.
Total estimated energy savings from projects financed by SEFFs equalled 1.4 million
MWh equivalent and CO2 emissions were estimated to have been reduced by more than
1 million tonnes. Through the Energy Efficiency and Competitive Industry Financing
Facility (BEECIFF), the Bank also for the first time organised a co-financing facility
combining EBRD, SME’s own funds and EU grants. This was a significant learning
exercise for the authorities, leading to financial engineering skills transfers.
The Bank’s financing for high profile corporates, major exporters and cross-border
investors has helped strengthen their competitive position, restructure their balance
sheets, and finance resource efficiency upgrades. Through its projects with corporate
clients such as KCM, Sisecam, SofiaMed, Dundee and Prista/Monbat, the Bank
effectively demonstrated the positive effects of restructurings (both Prista Oil and Sofia
Med are successfully responding to difficult market and operational environments),
improved corporate governance and standards – e.g., improved board structures, policies
and reporting in KCM (metals), Sofia Med (metals), Dundee (natural resources),
introduced innovative products and skills (such as implemented by Teklas (automotive) –
and achieved notable emissions and waste reductions.
In addition to reaching SMEs through partner bank credit lines, the Bank supported
directly smaller local companies in the printing, agribusiness, leasing and asset
management sectors through its Local Enterprise Facility (LEF). The Bank support
allowed clients to restructure their balance sheets, support equipment upgrade, and
finance capacity expansion, to help them realise their growth potential.
Nonetheless, the Bank has faced difficulties achieving some of its key strategy objectives,
especially in infrastructure and energy sectors. In the municipal infrastructure sector, the
Bank’s ability to provide financing was limited due to low demand from state and municipal
entities. Despite new investments, total portfolio and operating assets actually decreased
during the strategy period in the sector. The Bank has been seeking to advance
commercialisation of the urban transport sector in large municipalities (Varna, Burgas and
Plovdiv), through its projects blending EU grants. Implementation of the public services
contract is progressing well in the City of Varna, however delays have occurred in the case of
Burgas project. The City of Plovdiv is rolling out an innovative performance-based contract
for road rehabilitation and management. The Bank provided a second loan to the Fund for
Local Authorities and Governments (FLAG), which on-lends to smaller municipalities.
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FLAG was established in March 2007 in order to assist Bulgarian municipalities in absorbing
EU funds, by providing long-term loans in support of the municipalities’ own contributions
to the projects. To date, FLAG has had a significant impact and has been commercially
successful and highly popular among the municipalities (632 loans to 180 municipalities for
an amount of Euro 308 million). However, it should be noted that FLAG has predominantly
provided bridge lending, which has been helpful to facilitate smooth absorption of EU grants,
but is not fully in line with the objective of promoting long term debt to medium tier
municipal borrowers. Beyond those projects, the Bank expected to have more impact on the
municipal sector, but did not find suitable opportunities for financing transport and municipal
infrastructure through private structures.
Prior to the Strategy period, the Bank provided significant support to the Bulgarian energy
sector, including through provision of financing for production, transmission and distribution
and by arranging advisory assignments to help develop an independent regulator, a
sustainable energy action plan (SEAP) and through policy advice regarding privatisation of
electricity distribution. However, while the Bank’s exposure to the sector is around Euro 200
million, during the Strategy period, the Bank was unable to identify further investment
opportunities (excluding energy efficiency credit lines and grant financing from the Kozloduy
International Decommissioning Support Fund – see Annex 6 –),as a result inter alia of stalled
reforms in the sector. In addition, in 2012, the Government requested that the Bank cease new
financing in the renewables sector due to the sector’s unsustainable structure and tariffs. Since
then, the Bank has focused on managing the portfolio and maintaining a sectoral policy
dialogue.
Throughout the Strategy period the Bank continued its policy dialogue on certain key issues.
Examples of achievements include:
 Supporting regional integration of stock exchanges (including the Sofia, Skopje and
Zagreb Stock Exchanges) through the creation of a system for processing trades by a
newly created company based in FYR Macedonia. The project is expected to increase
liquidity in individual markets and the region, enhancing its attractiveness to both
issuers and investors;
 Contributing to improve both framework and individual company contracts between
municipalities and utilities/public operators;
 Working with the authorities to develop new structures to leverage grant resources,
particularly related to energy and resource efficiency initiatives (including addressing
insufficient knowledge about energy efficiency technologies, nascent development of
the market for efficiency auditing and verification), as well as water sector
investments;  Enabling more private sector participation in public sector and housing energy
efficiency through ESCOs and Energy Performance Contracting.
 Strengthening e-procurement rules and procedures managed by the Bulgarian
Procurement Agency (on-going utilising EU grant funds);
Toward the end of the Strategy period, the Bank signed a Memorandum of Understanding
which facilitates the use of available EC grant funds by the Government to finance EBRD
advisory assignments. The first assignment implemented under the MOU is an EProcurement initiative, which has been a strong success. The first two stages are completed
and the third and final stage will be completed in the course of 2015. The Government
intends to rollout a new unified procurement platform in the second half of 2015 which will
improve transparency and governance for public contracting. Following this successful
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initiative, additional assignments can be developed in the new Strategy period. For example,
the Bank has proposed an advisory assignment for the State Commission for Energy and
Water Regulation and also to utilise EU Funds to initiate the Small Business Service advisory
projects.
1.3. Lessons learnt
In the corporate sector, low economic growth, of around 1 per cent in each of the past few
years, and low levels of investment activities, have limited opportunities to engage.
Moreover, unlike in some other EBRD countries of operation, the Bank does not have access
to grant resources to support the development of SME projects for direct financing (LEF) nor
to support SME clients during implementation. For this reason, the Bank is seeking support
from the Bulgarian government to utilise EU Funds for a re-start of the SBS Advisory
Services.
In the financial sector, high liquidity of local banks, not only limited demand for the Bank’s
funding products, but also created unhealthy competition in a very fragmented market. In that
context, the Bank will seek to foster consolidation in the sector, and explore risk sharing
products to further entice banks’ lending to the SME sector.
In the municipal infrastructure sector, the Bank’s ability to provide financing and, leveraging
on it, to achieve its transition objectives, has been limited by the wide availability of EU
grants, and specialised investment vehicles (JESSICA, KIDS Fund), the fragmentation of the
municipal and utility sectors and the political instability, particularly after 2013, which has
limited private sector interest in the public sector. Implementation of municipal infrastructure
projects remained slow and in at least one municipality, complicated procurement procedures
delayed significantly disbursement. Lack of technical assistance for capacity support, which
could help prevent those procurement and implementation delays. In the energy sector, a
series of measures, which retroactively reduced the feed-in tariff for renewable energy
producers, has threatened the viability of existing investments and made further investment
practically impossible. The Government has also sought to limit new investments in power
generation and in particular in renewable energy capacity. Those limiting factors are not
likely to change materially in the new strategy period and the Bank will therefore adopt a
staged-approach in the energy sector, seeking to build on the recently reopened reform
dialogue before considering further investments.
The Bank’s ability to effectively implement its policy dialogue objectives is also impacted by
a lack of funds for advisory assignments. The only significant source of funding (for either
advice or co-financing) has been the EU Structural Funds, whose access is cumbersome due
to difficulty applying Bulgarian, EU and EBRD policies in implementation. Lack of technical
assistance has meant that the Bank has not been able to deliver significant impact on
necessary regulatory reforms to support investments. In the forthcoming strategy period, the
Bank will seek greater coordination with the EU and the various authorities implementing EU
supported initiatives in the country, in order to better leverage EU funds through newly
designed financial instruments with a stronger linkage to transition considerations.
2. OPERATIONAL ENVIRONMENT
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2.1
Political Context
The current government was established on 7 November 2014 following early general
elections that took place in October 2014. This is a coalition government comprising centreright political party “Citizens for European Development of Bulgaria” (GERB) and the
alliance of centre-right parties “Reformist Bloc”, as well as the centre-left “Alternative for
Bulgarian Renaissance” (ABV). Although short of the absolute minority in the newly elected
highly fragmented parliament, the governing coalition is sufficiently stable and able to adopt
necessary bills and implement its policies. The new government’s programme envisages
acceleration of the economic development and strengthening of the rule of law as its top
priorities.
This government is the outcome of a second early election in less than two years, which
reflects accumulated popular frustrations and the erosion of trust in the political
establishment. Restoring the trust of citizens in the state institutions and their support to the
objective of reenergising reforms represents one of the key challenges for the Bulgarian
authorities, without which the implementation of consistent polices may be difficult to
achieve.
2.2
Macroeconomic context
The economic growth edged up in 2014. Despite the banking crisis in June 2014, economy
grew at an estimated 1.5 per cent year-on-year in 2014, following 0.5 and 1.1 per cent growth
in 2012 and 2013, respectively. The major driver of growth was domestic demand. The
increase in wages and deflation pushed disposable income up, leading to higher household
consumption. Meanwhile, deflation is persistent since August 2013. Prices were falling at a
rate of 0.9 per cent year-on-year in December 2014, on the back of lower food prices, partly
affected by the Russian import ban leading to an oversupply, and lower global oil prices.
The government has maintained a prudent fiscal policy, but fiscal pressures may arise
with resolution of banking difficulties. Against the initial fiscal deficit target of 1.8 per cent
of GDP for 2014, the recently elected government passed a budget review, which foresees a
3.7 per cent deficit in 2014. Deterioration is driven by both underperforming revenues and
over-expenditures. The decline in revenues is fuelled by lower tax collection, whereas
government expenditure rose due to spending associated with bank bailout efforts and
infrastructure spending after summer floods. After the bank run on Corporate Commercial
Bank (CCB) in June, government approved a loan of up to BGN 2 billion to the Deposit
Insurance Fund, which can be used to cover the guaranteed deposits in the CCB. Higher-thanexpected fiscal deficit and more intensive borrowing to supply liquidity into the financial
sector are expected to push government debt to around 28 per cent in 2014. Nevertheless,
Bulgaria’s level of public debt remains the second lowest in the EU (after Estonia) relative to
GDP, providing space for fiscal reaction.
Growth is expected to further moderate in 2015. Deferment of the full resolution of
banking challenges to 2015 is likely to limit fiscal space and credit growth, thus lowering the
contribution of domestic demand to growth. Investment is expected to remain weak due to
on-going deleveraging in private sector and slowdown of EU-funded investment programmes
as the 2007-2013 programming period comes to an end, as well as cancellation of the South
Stream pipeline. In addition, exports will likely be constrained by continuing euro area
weakness. Overall, we expect growth in 2015 to moderate to 0.8 per cent.
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Key risks for the 2015 economic outlook are prolonged difficulties in the banking sector,
protracted recovery in Eurozone, and worsening geopolitical tensions. The negative spillover effects in the banking sector, if the forthcoming resolution is not fully credible, may
weaken credit growth further. The prolonged weakness in Eurozone might weigh further on
net exports, as Europe is the main trading partner of Bulgaria. Finally, worsening recession in
Russia and geopolitical tensions in Ukraine might affect Bulgaria through exports and
secondary effects, as well as deteriorating confidence, in circumstances where external debt
remains high (not far short of 100 per cent of GDP), in particular for private sector.
2.3
Structural reform context
Despite the advanced state of transition, it is clear that the structural reform agenda in recent
years has been adversely affected by the weak economic environment and political
uncertainty. Like much of the transition region, Bulgaria’s transition has become “stuck” in
several respects. Significant structural challenges remain, including the following:



2.4
A key priority is to develop the municipal sector so that it is financially sustainable
and well-regulated. The necessary steps include decentralisation, strengthening the
municipalities’ ability to meet contractual obligations and to attract commercial
financing, supporting innovative practices in protecting the environment (e.g. energy
efficient street lighting, reduction of water losses, improved waste utilisation, etc.),
and boosting the country’s capacity to absorb EU funds targeted for investment in
municipal infrastructure.
Further market opening in the power sector in consultation with all key sector
shareholders is another key priority. This requires a gradual reduction in the share of
electricity sales subject to regulated tariffs, careful consideration of the stranded costs
associated with the existing power purchase agreements, well-defined regulation, and
contractual arrangements and political support that encourage investments in the
network capacity and interconnectivity with neighbouring countries.
As revealed by the failure of the fourth largest commercial bank in June 2014,
improving the corporate governance in banks and further fostering credibility of
banking supervision are necessary to contain future banking difficulties and preserve
public confidence. The authorities have already publicly expressed their intention to:
(i) conduct an asset quality review in late 2015, (ii) conduct an FSAP with the
IMF/World Bank, due to commence with at least some modules in early 2015, and
(iii) start the preparation for entering the close cooperation agreement on single
supervisory mechanism (SSM) with the European Central Bank (the so-called ‘opt in
for SSM’), which would help improve supervisory environment and anchor the
confidence, although this process may not be completed in 2015. There are also
concerns about non-bank institutions, including in the insurance and pensions sector,
and Government has recently proposed amendments to the structure.
Business environment and legal context
Business environment
The conditions for doing business in Bulgaria have improved in recent years, but significant
problems remain, and contribute to explain the low, and falling, level of FDI in the country.
According to the World Bank’s Doing Business 2014 report, Bulgaria is ranked 58th out of
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189 countries. The report highlights significant shortcomings in areas such as dealing with
construction permits, resolving insolvency and getting electricity. Furthermore, in the
2008/09 Business Environment and Enterprise Performance Survey (BEEPS IV) Bulgarian
companies identified an inadequately educated workforce, difficulties in accessing finance
and competition from the informal sector as obstacles to development. The Government has
made efforts in the fight against organised crime and corruption, as recognised by the
European Commission (EC) in its regular reports under the cooperation and verification
mechanism. However, the latest CVM indicated continuing shortcomings, especially in the
judiciary and Transparency International’s 2013 Corruption Perception Index has ranked
Bulgaria in 77th position (out of 177 countries), among the lowest in the EU. From a
competitiveness point of view, the quality of public institutions, including those regulating
energy and water utilities, in Bulgaria is weak compared to most EU countries. According to
the World Economic Forum’s Global Competitiveness Report, Bulgaria ranks at 112th place
out of 148 countries in terms of the quality of its public institutions. On overall
competitiveness, Bulgaria fares relatively better at 57th place.
Legal context
Since joining the EU in 2007, Bulgaria has continued to upgrade its commercial law
framework in order to comply with EU requirements. Recent positive developments include
amendments to the Corporate Governance Code, amendments to the Commercial Act in the
field of insolvency law, and the introduction of a Public-Private Partnership Act. Moreover,
the legal framework for secured transactions is considered one of the most advanced in the
region.
Despite significant progress that has been achieved in commercial legislation in recent years,
the lack of enforcement of laws has been reported as a major weakness in various areas,
including in particular corporate governance and public procurement. And one of the biggest
challenges in the Bulgarian commercial law framework is the judicial system. The most
widespread concerns from the EU regarding the judiciary include ambiguity in the
independence of the judiciary and the need for greater transparency and efficiency.
Bulgaria is fully integrated into the internal market within the European Union, and market
liberalisation has been completed in most sectors. The remaining enterprises to be partly or
fully privatised include a few energy utilities and some transport operators. There should also
be room for further public-private partnerships related to some of the country’s large-scale
construction projects in the energy sector.
2.5
Access to capital
The current environment provides mixed signals about Bulgaria’s and the local borrowers’
access to capital. On the positive side, the Government has maintained very strong fiscal and
macroeconomic policies (evident in the current debt to GDP ratio of 23 per cent). This
macroeconomic performance has helped to support strong ratings from the major ratings
agencies. The government bond market is well developed, however secondary market
liquidity remains insufficient. Thanks to the prudent fiscal policy pursued in the last several
years the yields in recent issues has been favourable.
Private sources of capital
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Banking sector: Despite the high liquidity in the banking system, lending growth is modest
as banks remain conservative in their lending decisions and the demand for investment
financing is almost entirely driven by EU-supported grants or risk-sharing schemes.
The Bulgarian banking sector is largely foreign-owned (77 per cent market share), consisting
of 28 banks, with the top ten banks controlling over 80 per cent of the assets of the sector.
Since 2007, the level of banking sector assets has been relatively constant as a share of the
nominal GDP, reaching 110 per cent in 2013, around the average for the CEE region, but
significantly below developed market levels. In spite of the crisis that affected two banks in
the summer of 2014, the banking sector remains stable, well-capitalised and highly liquid,
with liquid assets representing one third of the total assets of the system, as deposits have
been growing faster than loans. Yet, the level of non-performing loans (NPLs) is high at 16.7
per cent at the end of 2014, although it fell moderately from the peak of 18.1 per cent in
September 2014.
Gross customer loans growth has dropped significantly since the pre-crisis boom years and
was around 3 per cent in 2012, 0.4 per cent in 2013 and 1 per cent for the first nine months
of 2014 (with KTB group excluded from 2013 year-end and September 2014 figures),
primarily directed to the corporate sector. Deposit growth remains strong at above 8 per cent
for 2012 and 2013, and 6.4 per cent in the first nine months of 2014 (KTB group excluded)
with deposits accounting for more than 80 per cent of total liabilities in the banking sector,
and loans-to-deposit ratio at close to 80 per cent. Increased deposit base and lowering interest
rates on deposits, stronger competition among banks on the market and subsidised conditions
of EU-funded finance on the market have pushed lending yields down. Based on BNB and
Ministry of Finance reporting, the average yield on customer loans for the banking sector was
6.4 per cent in the first nine months of 2014 (2013: 7.2 per cent, 2012: 7.7 per cent).
Microfinance: The microfinance segment is dominated by fast loan providers (which offer
loans at rather high interest rates) and bank-captive companies for consumer and microfinance. There are few traditional microfinance institutions, which also use EU funded
programmes (such as the Progress Microfinance Facility). The vast majority of the portfolios
in this segment belong to individuals. The average quality of the loan portfolios in the
microfinance segment is poor and many of the lenders in this niche have difficulties in
obtaining funding. Most banks prefer to focus their lending activities on stronger companies
with lower-risk profile. Thus, microfinance remains an underdeveloped part of the market
with the overall supply of credit declining.
Equity funds: Private equity and venture capital activities in the country are largely limited
to EU-funds supported programmes (i.e. Jeremie). The demand for equity finance is still low,
to a certain extent because of insufficient capacity of entrepreneurs to utilise this form of
finance and due to high valuation expectations. At present, most companies obtaining early
stage equity financing operate in ICT, mobile and web applications, e-commerce and digital
media.
Capital markets in Bulgaria are underdeveloped and markets are relatively illiquid. The low
stock of government debt and the unrestricted access to the primary auction process means
that there is very limited secondary market trading activity. While 380 companies are listed
on the Bulgaria Stock Exchange (“BSE”), capitalisation and turnover in the post-crisis period
remain low, and new listings are scarce. The State is still the majority shareholder of the
BSE, although there have been initial discussions and preparations for its privatisation.
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Given the issues in the banking system and the emergence of pension funds, there may be
some room to increase the use of non-bank financing instruments such as corporate bonds
and IPOs to raise capital. Central to this would be a review of the cost structure of issuance as
well as the ownership and operational structure of the BSE and the CSD. The recent SEE link
project, supported by EBRD, is expected to strengthen regional stock exchanges integration
and improve the options for raising funding through capital markets.
European Union and multilateral development bank finance
During the Strategy period, there has been very limited financial involvement of other
international financial institutions, with the exception of the European Investment Bank
(EIB). The World Bank has not provided new financing, but has continued to advise the
Government through its reimbursable advisory services in the areas of toll road revenues,
retail sector competition and trading practices, water supply and sanitation, as well as
innovation. The IFC has invested approximately Euro 50 million per year on average. The
Black Sea Trade and Development Bank has not financed new projects during the period.
EU funds: In the last few years the EU funds absorption has been the main driver behind the
financing of public and private projects in Bulgaria, providing grant and subsidised financing
terms, often leveraged by the IFIs, the local banking sector and the private equity funds. It is
in fact estimated that infrastructure funding, much of which financed by EU Funds, has
supported Bulgaria to retain its positive, albeit small, growth in the past few years.
Projects in the municipal, water and road infrastructure sectors have been financed through
the EU Structural Funds Operational Programmes (the largest programmes being OP
Regional Development and OP Environment) with very high grant levels and bridge and/or
co-financing for the projects provided mainly from the state-owned fund FLAG, co-financed
by EBRD and commercial banks. The public sector development has been supported and
financed by the EIB as well. During the Strategy period, political instability, delayed reforms,
poor financial standing of public beneficiaries, as well as problems related to project
management and implementation and public procurement, created difficulties in the efficient
and timely utilisation of EU funds and in fact a number of OPs were suspended during 2014.
The current Government has been able to release frozen funding and is focused on finalising
use of 2007-2013 OPs and thereafter the effective use of 2014-2020 OPs (as at end 2014,
Bulgaria had absorbed approximately 65.5 per cent of available EU funding in the 2007-2013
programming period, but disbursements will continue throughout 2015). In addition, in early
2015 Bulgaria submitted 18 projects to the Special Task Force on Investment in the EU, to be
assessed as part of the comprehensive Jobs, Growth and Investment package (“Junker Plan”).
Projects submitted are in the areas of transport, energy, innovation and environment, and
envisages a total financing of Euro 3.5 billion, out of which only 4 per cent would be
potentially open to private financing.
EU funds have also played a significant role in the private sector financing, with funding
involving both grant financing (up to 50 per cent of the project investment for SMEs and up
to 70 per cent for energy efficiency for residential buildings), as well as subsidized terms for
lending and equity financing (Jeremie Funds, see below).
European Investment Fund (Jeremie Funds): The revolving Jeremie Holding fund,
managed by EIF, manages Euro 350 million from the OP Competitiveness, covering almost
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the whole spectrum of SME financing, from seed funds, venture capital funds, co-investment
funds to commercial banks (with first loss portfolio guarantee and portfolio risk sharing
loan), which through leverage from the commercial banks and private equity funds is
expected to reach Euro 800 million in financing for SMEs by 2015.
The funds channelled through commercial banks (about Euro 260 million) have been utilised
at about 80 per cent in the 2 years since the start of the programme. The Jeremie equity funds
have also been quite successful, especially the two seed funds Eleven and Launchhub,
focused mainly on IT start-up companies, and managing a portfolio of Euro 30 million. These
funds are unique for the region, and entrepreneurs from neighbouring countries are able to
access the funding (as long as they register a company in Bulgaria).
European Investment Bank: EIB has provided large infrastructure financing (Euro 300
million per year on average over the past 4 years, mostly transport and waste management),
often in cooperation with EU grant funded projects. EIB and EIF also have worked with
banks to provide low-interest lending to the corporate sector and with fund managers to
create equity funds for smaller companies. Over the 2012-2015 period, its financing has
benefited broadly equally the private and the public sectors.
2.6
Social context
The level of unemployment has been a persistent problem in Bulgaria throughout the past
five years. As of end 2014, the overall unemployment rate was 11.5 per cent, with a slightly
higher rate among males (12.3 per cent) relative to females (10.4 per cent). Around 60 per
cent of those unemployed have been so for over a year. Youth unemployment is particularly
severe, reaching 23.9 per cent in 2014. The overall labour force activity rate at 68.4 per cent
in 2013 is close to the EU average of 71.9 per cent.
In 2013, Bulgaria ranked 38th out of 148 countries (12th out of the Bank’s 35 countries of
operations) in the Gender Inequality Index, a composite measure of gender gaps in
reproductive health, labour force participation and political representation. The same year,
female labour force participation was 48 per cent compared to 59 per cent for men. Bulgarian
women are well represented in business and political leadership positions and hold 25% of
the seats in Parliament and nearly a third of Government ministries. Gender gaps in access to
finance are medium. However, despite substantial improvements in legislation and
government action, trafficking of women remains an important gender problem. The situation
of women and girls within minorities deserves also particular attention as they tend to
combine the consequences of exclusion based on their gender and their ethnic group.
2.7
Energy efficiency and climate change context
Bulgaria’s energy intensity remains over 5 times the EU-28 average and despite having cut
by half its energy intensity since the early 1990s, Bulgaria remains the least efficient energy
economy in the EU (namely 1.31 versus 0.24 CO2/GDP). In addition, the electricity sector
faces a serious liquidity crisis (with payments delayed throughout the energy cycle from raw
materials (coal, gas), through to energy producers, distribution and final purchasers).
Stability in the sector will require price adjustments, new capital and, most importantly,
improved regulation. The current system of low tariffs and cross subsidisation does not
provide incentives for energy savings. Energy efficiency improvements across the sectors are
therefore important to mitigate the increasing electricity demand and support a more
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sustainable economic development. In addition an ESCO advisory assistance programme
would help municipalities consider and structure ESCO contracting for public buildings
maintenance.
In terms of adaptation activities, there is potential in developing climate resilience/water
efficiency activities in water infrastructure and water efficiency in industry (including
manufacturing, agribusiness, mining, etc.).
3. STRATEGIC ORIENTATIONS
3.1
Strategic Directions
Bulgaria’s entry into the EU in 2007 followed a sustained period of reforms, strong economic
growth, and increasing integration into European and global markets. Since then, however,
the country has been buffeted by the global economic crisis in 2008/09 and the subsequent
Eurozone crisis, compounded more recently by a period of political instability. Several years
of recession or anaemic growth have been accompanied by higher unemployment, lower
investment and increasing regional disparities. In this environment, progress in transition has
been much more hesitant than in the run-up to EU accession and has even reversed in some
cases. This has made it more difficult for the Bank to utilise its financing to promote reforms,
especially at state and municipal levels, while demand for Bank funding in the corporate and
financial sectors has also been subdued due to the overall economic situation and lower levels
of investment. Notwithstanding Bulgaria’s status as an EU member and the advanced state of
reforms in many areas, the country still faces significant reform challenges in the years to
come.
In this context, the overarching goal of the Bank’s activities in the forthcoming Strategy
period in Bulgaria will be to create a new impetus for reforms in order to support growth
through investment and policy dialogue and re-energise transition. The Bank will pursue this
objective in the following ways:

Enhancing Competitiveness through Improved Efficiency, Governance and
Innovation: Although corporate governance and business standards have improved
since accession to the EU in 2007, there remain large opportunities to bring skills,
governance and management practices closer to international standards. Conditions
for doing business in Bulgaria have improved in several respects over recent years,
but issues clearly remain which hinder investment, notably with respect to dealing
with permits and licences, labour contracts and insolvency procedures.
Competitiveness of Bulgarian firms is also impacted by the small-scale nature of
operations in key sectors. Given the above issues, the Bank will support financial
restructurings and provide long term finance for competitiveness enhancement, and
energy and resource efficiency investments. The Bank will also support regional
economic integration by providing financing for cross-border investments and
exports. For smaller companies, the Bank will work with and through financial
intermediaries to ensure sufficient access to funds. The Bank could expand business
advisory activities, although this depends on access to donor or budget resources.
Finally, on a national level, targeted advisory assignments will address obstacles to
doing business.
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
Strengthen the financial sector intermediation through targeted investments and
improved governance: Profitability has fallen across the banking sector and
consolidation in the sector may be necessary. Following the recent closure of
Corporate Commercial Bank, the National Bank and the Government have started
work on a number of initiatives – independently and jointly with international partners
– which are designed to fully restore public confidence to the sector. They have also
signalled their intention to opt-in into the Single Supervisory Mechanism (SSM)
where the ECB is the direct supervisor of major cross border banks. Given the high
level of liquidity in Bulgarian commercial banks at present, the Bank will explore risk
sharing products or products blended with grant resources, in order to support overall
intermediation and in particular MSME development. It will also support sector
consolidation where needed, and help address the issue of high NPLs. The Bank will
also seek to support the deposit insurance fund with a combination of investment and
policy dialogue.

Narrowing the Infrastructure Gap through Commercialisation, Reform and
Efficiency: Years of underinvestment and limited private sector involvement have led
to deteriorated quality of municipal and national infrastructure. In particular,
municipalities and state agencies need to strengthen technical skills in planning,
procurement and project management in order to benefit from available funding. Gas
transportation and storage facilities, which are key to the country’s energy security,
would benefit from expanded commercialisation and investment. The energy system
operates in an unsustainable fashion. End-user tariffs are below production costs
which inhibits long-term investments. The country remains the least energy efficient
economy in the EU and the current energy policies do not provide a framework
conducive to investments in the sector. In that context, the Bank will seek to support
commercialisation and private sector participation in transport and gas infrastructure,
as well as at the municipal level, in areas such as water and waste management,
district heating and urban, national and cross-border transportation. The Bank will
work with the authorities to facilitate leveraging of available EU structural funds
through newly designed financial instruments with clear linkage to transition
considerations. In the energy sector, the Bank is ready to renew its dialogue with the
authorities with the view to support the development and implementation of a longterm energy strategy, including strengthening the regulator and reviewing tariff
policies. Provided that this engagement leads to an improvement in the institutional
and regulatory environment of the sector, the Bank would subsequently provide
investments to support public utilities financial and operational performance, while
continuing energy efficiency investment across the economy.
3.2
Key challenges and Bank activities
Theme 1: Enhancing Competitiveness through Improved Efficiency, Governance and
Innovation
Transition Challenges

Standards of management, governance and skills in private sector companies often lag
behind Bulgaria’s international competitors. The most recent Transition Report
highlighted the need to improve innovation throughout the economy – in terms of
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

process, product, marketing, or organisational innovation. This would help raise
efficiency and thus productivity, as a potential growth driver against the background
of shrinking population, from nearly 9 million in 1990 to around 7 million currently.
Growth prospects in important sectors such as agribusiness and tourism are held back
by the small scale of operations. Consolidation in certain cases would allow Bulgarian
firms to compete more effectively in the international environment with greater
financial or technical resources.
Concerns about application of laws in non-transparent or arbitrary manners undermine
investor confidence which, alongside cyclical economic issues, has led to falling FDI
inflows, both in terms of projects’ size and number of investments. FDI have
decreased from a peak of more than 30% of GDP in 2007 to less than 3% in 2014.
Addressing investor concerns could help attract needed investment which will
contribute to competitiveness in the corporate sector through skills transfers and
increased competitiveness. Other aspects of the business environment where
businesses have expressed concern include delays and lack of transparency in
receiving permits and licences.
Operational Response
Through its investments and policy advice, the Bank will seek to address these transition
challenges by facilitating private sector-led growth. Specifically, the Bank will:
 Support firms which are investing to upgrade equipment and technology and also
which require improvements in operational standards and governance. Of particular
importance is the Bank’s ability to offer a variety of long-term financing, both equity
and debt products. While it is acknowledged that certain sectors of the economy have
benefited from greater access to commercial bank financing, the Bank continues to be
additional across sectors – manufacturing, property, agribusiness across the value
chain, and services – as companies in all key sectors face similar obstacles to longerterm finance.
 For smaller companies, the Bank has proposed to re-launch small business advisory
services programmes, to support SMEs on operational improvements, financial
management and adoption of best standards. However, this is dependent on access to
donor funds or Government budget funds. This would be subject to devising an
appropriate ‘hand-over’ strategy whereby the Bank’s involvement should not be
necessary following a 3-5 year period. Other instruments to support SMEs will
continue to be pursued, including risk sharing products to encourage banks and
leasing companies to extend finance to SMEs and utilise currently high liquidity, PE
funds, as well as direct investments by the Bank.
 Support the development of the innovation/‘knowledge’ economy, which benefits
from the country’s strength in education, engineering and computing. The Local
Enterprise Facility (LEF) and revitalised equity and quasi-equity fund activities may
be particularly relevant given the size of most Bulgarian companies in this sector. For
example, the Bank has been working with the authorities and EIF to put in place a
mezzanine capital fund for mid-size companies with growth opportunities.
 As companies seek to reduce leverage and restart credible business plans, work with
co-financiers (banks and funds) to assist financial and operational restructurings with
high demonstration effect, aiming at market consolidation and/or improvement in
management and corporate governance.
 Support in-bound and out-bound FDI, especially projects with important skill or
technology transfer components, or bringing higher standards into the country, with a
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
particular focus on sponsors and projects from the region, which represent an
increasing share of the foreign investment inflows. Continue facilitating exports
through cross-border and pre-export trade finance, as well as potentially SMEs
business advisory to improve export readiness.
Support investors in outlying, traditionally under-serviced regions, especially those
parts of the country where unemployment is high and certain social groups are
excluded from economic opportunities. In fact, corporations from neighbouring
countries have often located their investments in outlying regions along shared
borders. As a business development tool, the Bank will continue to engage with the
private sector and deliver energy audits directly to private companies across sectors as
a means to identify sustainable investment opportunities consistent with the Bank’s
Sustainable Energy Initiative across the sectors and industries in Bulgaria. In addition
the EBRD will expand operations to address resource efficiency under the Bank’s
Sustainable Resource Initiative and contribute positively to the pressing issue of water
efficiency in the private sector (e.g., agribusiness) and municipal sector.
Policy Dialogue



The Bank will continue its active participation in investor working groups and
business associations, as well as its wide-ranging dialogue with Government and
between IFIs in order to address perceived problems in the business climate.
The Bank will continue to provide targeted legal transition advice on issues which
impact business development. This could include advice to the Ministry of Justice to
improve the Corporate Insolvency Law, as well training initiatives for judges/courts to
develop capacity in dealing with business related cases, with particular emphasis on
disputes involving financial and business transactions.
If the small business advisory programme is restarted, the Bank will provide advice to
the authorities on how to manage it in a sustainable manner, in order to facilitate the
hand-over of the programme.
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Theme 1: Enhancing Competitiveness through Improved Efficiency, Governance and Innovation
#
CHALLENGES
OBJECTIVES
ACTIVITIES
INDICATORS
[metric/ baseline]
Improve management
skills and governance for
the benefit of
competitiveness, support
sector consolidation
 Direct investments, including financial
restructurings, supporting improved
governance and market consolidation
 Facilitate the re-launch of the Bank’s
Small Business Services in Bulgaria
 Evidence of financial / operational
improvements, as well as enhanced
corporate governance and business
standards by clients (Baseline – 0)
 SBS / TIMS indicators on number of client
firms that reported increased productivity /
employment (Baseline – established at
projects approval) and SBS re-launched
and sustainable through local funding
sources [target: by 2018] (Baseline – N/A)
Need to improve
innovation throughout the
1.2 economy to help raise
efficiency and thus
productivity
Support corporate
innovation in terms of
processes, products and
marketing
 Direct investment supporting new
products development, technology and
processes upgrades and skill transfers
 Co-financing activities with foreign and
local investors in ‘knowledge economy’
bringing higher standards or skills
 Support to equity funds.
 Evidence of successful introduction of new
innovative processes, products and
standards by client firms (number of
successful projects and qualitative account)
(Baseline – established at project’s
approval)
Business environment
leaves room for
improvement in several
1.3 areas: e.g. insolvency
procedures, dealing with
permits and licences, and
labour contracts
Help enhance business
environment in selected
areas
 Policy dialogue/ advisory services on
selected topics such as insolvency law
 Evidence of successful improvements in
business environment (e.g., insolvency law)
as a result of the Bank’s policy dialogue
(Baseline – N/A)
Competiveness is
hampered by small size
of local companies, and
1.1 weak corporate
governance and
management skills
Context indicator: ∆ Business sophistication index (2014 baseline: 105th). Source: Global Competitive Index (World Economic Forum)
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Theme 2: Strengthen the financial sector intermediation through targeted investments and
improved governance:
Transition Challenges






Despite quick successful actions by the authorities following the run on two large
banks in summer 2014, questions have been raised about the need to strengthen
banking and non-banking financial regulation, banking supervision, and corporate
governance. Although the authorities’ intention to commence the preparation for
entering the Single Supervisory Mechanism (SSM) with the European Central Bank
(ECB) will be a challenging process for the authorities and banks themselves, and
will likely take some time, it should also help restore the full confidence in the
sector’s governance, regulation and supervision. Given low profitability amongst a high number of commercial banks, some
consolidation would help address the capital constraints faced by some smaller
players and some foreign-owned subsidiaries. Although level of NPLs remains high, there seem to be no coordinated action towards
their sustainable resolution. A functioning NPL servicing industry, especially for
corporate and secured loans, should therefore be developed.
Bank lending and investments in general are hindered by shortcomings in the judicial
system and in particular the insolvency regime. Banks and corporates have repeatedly
expressed concerns about their ability to enforce loan agreements and other contracts.
Despite ample liquidity in the banking sector, lack of eligible collateral has
constrained finance for MSMEs and start-ups, especially in the regions. Increasing
non-collateralised bank lending, particularly for MSMEs, remains a challenge. In
addition, access to equity for small firms and innovative enterprises is limited. Local
funding opportunities through bond issuance, syndicated lending, and various equity
opportunities need to be developed for the banking sector.
The corporate bond market is underdeveloped and volume outside government bonds
remains small. Operational Response




The Bank will work with banks and the regulator to encourage sales of NPLs,
including through investing in NPL portfolios, mobilising specialised NPL investors
or financing NPL asset management companies. Additionally, the Bank will support
the establishment of credible local corporate and secured NPL asset managers that can
more efficiently service corporate and secured NPLs outside the banking system.
To increase public confidence in the banking sector, the Bank will seek to provide
stand-by funding and potentially technical assistance to the Bulgarian Deposit
Insurance Fund, in order to bridge its funding needs until sufficient reserves are
accumulated, and support legislation and procedural reforms. This will be coordinated
with both Bulgarian and international partners to develop a well-structured response
to address concerns in the sector.
As opportunities arise, the Bank could work with strategic or financial investors to
support M&A in the sector in order to ensure a healthy and competitive banking
system and help improve corporate governance practices.
In order to improve access to finance for smaller and mid-size companies, the Bank
will provide credit lines to banks and leasing companies for MSME finance, energy
efficiency through sustainable energy financing facilities (SEFFs), trade finance and
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


factoring. Funding lines will likely need to be dedicated to specific underserved
objectives or, given risk appetite of commercial banks, linked to risk-sharing
products. In this regard, EBRD will work with its bank partners and the national
authorities to consider and develop risk-sharing products to facilitate the banks in
extending finance to the SME sector.
As liquidity from short term deposits is not expected to remain as significant a share
of funding as at present, the Bank will seek to support bond issuances by banks and
corporates and syndicated lending transactions, to contribute to the development of
the capital markets in the country. The Bank will also seek to support capital market
solutions as a potential source of equity finance for local companies.
EBRD will aim to provide support for institutions and capacity building to strengthen
the capital market infrastructure in the country, e.g. by supporting the privatisation of
the stock exchange and enhancing capital market links with other neighbouring
countries.
The Bank will continue to monitor opportunities to engage in the insurance and
pension sectors, and as needed can respond with policy dialogue and also funding to
support consolidation in the industry and especially to further strengthen the private
pension fund industry.
Policy Dialogue



In close coordination with other IFIs, the Bank will provide assistance to the Deposit
Insurance Fund and other relevant financial authorities upon request to support
implementation of appropriate organisational and procedural changes, as well as
capacity building, as recommended by relevant technical assessments to improve the
regulatory framework.
Providing the authorities’ interest and commitment, the Bank will engage with
Bulgaria’s financial and judicial authorities, market participants and other IFIs, under
the umbrella of the Bank’s Vienna Initiative framework and in other ways, to advance
the NPLs resolution agenda. As mentioned above under Theme 1, the Bank could
provide technical assistance and advice to improve the Corporate Insolvency Law and
help to build the capacity of judges handling bankruptcy (reorganisation) and
enforcement cases. In addition, the Bank will seek to support commercial banks with
training on corporate restructurings best practices. This would assist banks and
secondary investors by providing them with more effective tools for resolving and
realising value from NPLs.
As noted above, the Bank is available to provide policy guidance on pensions reforms
if requested, where the country to date has been a leader through development of a 3pillar public and private pension system.
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Theme 2: Strengthen the financial sector intermediation through targeted investments and improved governance:
#
CHALLENGES
Some important shortcomings
remain in banking and non-banking
2.1 financial regulation and corporate
governance, heightened by the
fragmentation of the market
Access to finance remain difficult
2.2 for SMEs, hampered by high levels
of NPLs on banks’ balance sheets
Capital markets remain
underdeveloped, in particular debt
2.3 markets where volume outside
government bonds remains small
ACTIVITIES
INDICATORS
[metric/ baseline]
Support improvements in the
deposit insurance framework,
and assist market consolidation
as opportunities arise
 Advisory to the deposit insurance
fund
 Support M&A in the banking
sector
 Evidence of improvements in
deposit insurance framework, as a
result of the Bank’s policy
dialogue (Baseline – N/A)
Address obstacles to access to
finance for underserved
segments, including seeking to
resolve the issue of high NPLs
 SME financing through credit
lines to partner banks, and private
equity and venture capital funds
 NPL resolution/sales, support to
NPL asset management industry
 Policy dialogue on NPL
resolution (including judicial
Corporate Insolvency and
enforcement framework)
Support development of capital
markets, in particular corporate
bond market
 Support bond issuances by banks
and corporates
 Support development of capital
market instruments for SME
equity financing
 Investment and advice in capital
market infrastructure
OBJECTIVES
 Number and volume of total
loans and leases extended by
client banks/ leasing companies
to MSME (e.g. through SEFFs)
(Baseline – established at
project’s approval)
 Decrease in sector-wide NPL
ratios, and, as appropriate,
attribution to the Bank’s activities
(Baseline 2014 – 16.7%)
 Evidence of improvement in
equity and corporate bond
markets (e.g., new
issuers,[Baseline 2013: 381 listed
companies] increased
volumes,[Baseline 2013:
corporate bonds outstanding:
2.8% GDP, market
capitalisation: 13.1% GDP, %])
and, as appropriate, attribution to
the Bank’s activities
Context indicator: ∆ Financial market development (2014 baseline: 60th / 4.2). Source: Global Competitive Index (World Economic Forum)
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Theme 3: Narrowing the Infrastructure Gap through Commercialisation, Reform and
Efficiency
Transition Challenges





Most municipalities are quite small and lack financial and technical strength. Nearly
all municipalities need to strengthen their technical skills in planning, procurement
and project management. Consolidation of the municipal sector and decentralisation
of decision making to municipal levels has not proceeded and local communities face
difficulties managing operations, for example in water, waste and transport, and in
particular developing projects where the private sector can contribute to public
services.
The road sector suffers from lack of commercialisation and private sector
involvement. Longer-term service contracts between the national rail company and
the private operators could be designed to offer better value for the State and also
provide greater certainty to private operators.
Inconsistent regulatory policies make it difficult for investors to commit to long-term
investment plans. Uncertain regulation, cross subsidies and under-pricing constrain
private and public investment in utilities, as well as in alternative sources of energy
such as gas (and also gas storage), putting at risk Bulgaria’s energy security. The
absence of electricity and gas exchanges and a lack of transparency in the wholesale
market remain key obstacles to improving the functioning of energy markets. Despite
the role of an ‘independent’ regulator, tariff setting and regulatory policy remain of
concern to investors.
Despite some progress in recent years, Bulgaria has the least energy efficient
economy in the EU. Further energy efficiency and CO2 reductions require
improvements in legislation, regulation and infrastructure, including an overall reform
plan to move to cost reflective tariffs that providing effective price signals for
consumers and producers.
Significant grant resources are available from EU Operational Programmes.
However, Bulgaria has often faced difficulties absorbing EU funds and there is
potential to better leverage these funds to finance infrastructure projects.
Operational Response



The Bank will seek to work with larger municipalities directly, as well as with
municipal companies in water and waste management, district heating and urban
transport, to support commercialisation of operations. Focus will be on long-term
planning and contracting, in order to enhance predictability for both the authorities
and the contractors. Building on experience with FLAG, the Bank will consider
further framework arrangements which would allow to effectively support smaller
municipalities and local utilities.
The Bank will continue to co-invest alongside EU with the aim to enhance efficiency
and long-term sustainability of EU-funded projects, with a particular focus on projects
promoting regional interconnectivity.
The Bank will help to restructure state owned and municipal-owned utilities and
transport entities, within an appropriate Government policy framework, and in this
way assist in the absorption of EU funds through blending and co-investment.
Individual projects will likely be linked to advisory assistance to improve capacity,
commercialisation, and also the contractual frameworks.
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




Continue to engage with the public gas companies and the regulator to finance the
expansion and modernization of the national gas infrastructure, promote tariff reforms
for gas transmission and storage services that will be supportive of investments and
increased commercialisation of the gas infrastructure sector.
The Bank will continue to support energy efficiency through its SEFF projects for
municipal and residential companies, but will also work with Government to consider
new mechanisms for supporting energy efficiency for the residential and municipal
sector (through ESCOs and Energy Performance Contracting). Goal will be for EBRD
to work with the Government to develop sustainable financing approaches. This will
require new financial engineering instruments, involving technical cooperation, grant
and investment resources.
The Bank has remained engaged with the authorities on the overall reform of the
energy sector and has recently seen an improved level of dialogue. Provided that the
institutional and regulatory environment of the sector continues to improve, the Bank
will seek to provide financing to private distribution companies and possibly also state
companies – including Bulgaria Energy Holding, National Electric Company,
Electricity System Operator – to address balance sheet restructuring needs and to
improve their long-term financial positions.
In addition, the Bank could address energy security issues by financing commercially
viable alternative energy sources and sustainable buildings.
The Bank will continue to manage the KIDSFund resources, although there are
limited resources now available for non-nuclear activities, and most of the ongoing
initiatives will be related to decommissioning.
Policy Dialogue
To address the transition challenges noted, the Bank will seek to supplement its infrastructure
investment with advisory assistance to support commercialisation and efficiency of public
infrastructure. However, as the Bank has very limited access to donor resources for Bulgaria,
we expect to implement a limited number of carefully focused advisory projects, mostly
financed through EU funds, which can now be used to finance EBRD-managed technical
assistance, in accordance with the Memorandum of Understanding the Bank entered with the
Bulgarian Government.




The Bank will work with Government and Parliament to improve legislation
impacting on utilities. For example, the Bank will continue to work to improve
and implement Bulgaria’s Water Act and related regulations which would help
improve the efficiency, the service quality and the transparency in the sector.
Having completed 2 stages of a 3-stage assignment, the Bank will complete
ongoing assistance on E-Procurement which should lead to major improvements
in policies and technical procedures for public procurement. This is the first Bank
initiative to be financed under the MOU which utilises EU Operational
Programme resources managed by the Bulgarian Government.
The authorities have recently reengaged with the Bank on the need to develop a
long-term strategy for the energy sector, without which further investments in the
sector will be very challenging, starting with a request for advice to the energy
regulator. Follow-on policy projects could include reform of the legal regime and
support to key sector actors in improving their operational capacity.
The Bank is currently implementing an ESCO advisory assistance programme to
help municipalities consider and structure ESCO contracting for public buildings
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
maintenance. The Bank will seek to expand access of corporates to energy audits
which will help target their energy reduction potential.
The Bank will explore opportunities to help the Government develop efficient
structures for utilising and leveraging EU grants for key sectors such as water,
municipal infrastructure and energy efficiency. This could include both advice on
government strategy, as well as at the fund level for best standards of fund
management.
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Theme 3: Narrowing the Infrastructure Gap through Commercialisation, Reform and Efficiency
CHALLENGES
OBJECTIVES
INDICATORS
[metric/ baseline]
ACTIVITIES


3.1
Lack of incentives for
private sector engagement
in infrastructure and
utilities sector has led to
deteriorated quality of
municipal and national
infrastructure and
weakening in in
management capacities
Encourage
commercialisation and
private sector participation
in the infrastructure sector



3.2
Key reforms have stalled
or reversed, inconsistent
regulatory policies make it
difficult for investors to
commit to long-term
investment plans
Support the Government in
selective areas where there is
reform appetite (e.g., Water
Act, E-Procurement, Energy
sector)


Investments and TC for municipal
water and waste management,
district heating and urban transport
to support commercialisation of
operations
Support to modernization of the
national gas infrastructure
Restructuring of public transport
entities together with EU funds in
support of commercialisation and
efficiency improvements
Policy dialogue/ TC under the
MOUs TC on implementation of
Bulgaria’s Water Act and related
regulations
Policy advice on long-term strategy
for the energy sector (including
strengthening regulator)
Assistance on E-Procurement


Evidence of improvements in
efficiency and service delivery on
revenue side (including tariff
increases) and cost/profit side (cost
reductions and profitability
improvements) at client level
(Baseline – established at project’s
approval)
Infrastructure services (number of
successful projects and qualitative
account) successfully outsourced to
private sector (e.g. concession, PPP
(BOT), lease of assets, management
contracts) (Baseline – 0)
Evidence of targeted regulatory/
institutional reforms successfully
implemented (e.g., implementation
of e-procurement by national
procurement office and major
SOEs, progress on Water act,
progress on Energy regulator
reforms) (Baseline – N/A)
Context indicator: : Δ in relevant ATC scores (Baseline 2014 - Natural Resources (Small, 3+), Power (Medium, 3), Water (Medium, 3), Urban
Transport (Small, 3+), Roads (Medium, 3-), Railways (Small, 3+)
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3.3
Potential risks to Country Strategy implementation
Successful implementation of the Country Strategy will necessarily depend on a number of
factors, some of which are outside the Bank’s control.






3.4
Given its focus on the private sector, the general macroeconomic environment will be
important in determining the commitment of companies to invest and the Bank’s ability
to work with local and foreign investors on sustainable business initiatives.
Investment volumes and the ability of the Bank to deliver its strategy objectives will
greatly depend on a supportive political environment in Bulgaria and the authorities’
overall reform commitment. In particular, in the energy sector, the Bank’s strategy is
dependent on an active reform dialogue, for which the Bank has proposed both advice
and funding. Absent of progress on reforms, it is likely that the sector will continue to
suffer financial losses and the Bank will not be able to progress in its objectives.
Successful implementation of objectives in the municipal sector relies on a progressive
delegation of decision-making power and financing capacity to local governments. To a
significant degree these measures can be politically contentious and in any case require
consultations with governmental and legislative bodies.
Success on strengthening financial intermediation, under Theme 2, may be challenged by
the ongoing difficulties in the banking system, including high levels of NPLs, which
absorb managerial time and discourage new lending. In order to achieve these objectives,
this will require commitment of financial authorities and full alignment on areas of
engagement between the authorities and the Bank.
Success on narrowing the infrastructure gap, under Theme 3, may be challenged if
absorption rate of EU cohesion funds allocated for infrastructure and environment
projects is not maintained. For 2014-2020 budgeting period, EU funds granted to
Bulgaria amount to almost Euro 7.6 billion, but the Bulgarian government needs to
contribute financially to the projects. If rising fiscal deficit lowers the domestic funds
available, Bulgarian government might end up spending less than the total amount
granted. On the other hand, a bid to maintain recently accelerated absorption rate
(currently at 65,5 per cent) may also pose a risk if processing project bids and tenders too
fast results in sub-optimal infrastructure investment choices.
The Bank has limited access to grant resources for providing policy advice. The
Government should confirm its readiness to utilise EU Funds under framework
arrangements to benefit from IFI advisory assignments.
The presence of high intensity EU grants and concessional IFI lending makes
commercial-based lending unattractive for the public sector.
Environmental and Social Implications of Bank Proposed Activities
As an EU member state, Bulgaria has adopted environmental and social legislation that is
aligned both with EU Directives and the EBRD’s Environmental and Social Policy and
Performance Requirements (PRs).
The Bank’s recently approved Environmental and Social Policy will apply to all projects
carried out in Bulgaria. As part of the Project appraisal process, the Bank will work closely
with clients on developing Environmental and Social Action Plans (ESAPs) for all Projects
which have the objective of mitigating potential negative impacts and ensuring compliance
with the Bank’s PRs. Similarly, Project monitoring shall include regular review of existing
ESAPs to determine compliance.
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It is noted that the Strategy going forward will include a focus on specific sectors such as the
development of transport, water, district heating, waste and municipal infrastructure and this
may involve land acquisition or economic displacement for local populations and the Bank’s
Performance Requirements will apply in such cases. It will be important to identify any
vulnerable populations that may be disproportionately affected by the projects and to ensure
that stakeholder engagement activities include any marginalised groups.
Health and safety is also an important consideration for all projects and the Bank will work
with clients and sponsors to promote the development of an appropriate safety culture.
The Bank has an interest in a number of nuclear safety funds related to the decommissioning
of old and redundant generating capacity throughout the region. This includes work being
carried out on the Kozloduiy plant in Bulgaria (see Annex 6 for more details). All work
related to the use of such funds will be subject to the Bank’s Performance Requirements.
According to the assessment of gender gaps of the Strategic Gender Initiative (SGI), Bulgaria
exhibits medium size gaps in women’s access to finance and women’s employment and firm
ownership. With respect to labour, while the gaps relating to labour policy are small, gaps in
labour practice are large, which indicates an implementation gap between laws and policies
and the actual situation and experiences of female employees. EBRD will address this gender
gap in two ways. First, by strengthening application of labour related policy requirements
under the Environmental and Social Policy 2014 during ESD due diligence of Bank projects.
And second, by identifying opportunities to have demonstration effect in this area through the
implementation of targeted Equal Opportunities projects in selected, high-profile EBRD
clients in Bulgaria. Special attention will also be paid during ESD due diligence to those
women who may experience discrimination due to their ethnicity such as Roma.
3.5
Cooperation with the EU and other MDBs and Donors
EBRD has a regular and consistent dialogue with other international institutions operating in
Bulgaria. The main “donor” in the country will continue to be the European Union, which is
in the process of initiating a seven-year funding programme for the period 2014-20. The EU
has allocated Euro 7.6 billion (current prices) in total Cohesion Policy funding across seven
Operational Programmes. EBRD has already been able to co-finance projects during the last
financial framework, including with funds from the Competitiveness and Regional
Development programmes. The Bank is reviewing projects which will promote regional
integration and which can benefit from EU funds for regional integration.
As noted already, Bank lending has been instrumental in supporting projects which are cofinanced with EU grants. The Bank will continue to coordinate with Bulgarian authorities and
the EU to bring its resources and expertise to Operational Programmes (OPs) in areas such as
Regional Development, Environment and Competitiveness. These OPs are geared to helping
Bulgaria address needs in the areas of municipal infrastructure (incl. water, wastes, district
heating), SME development and energy efficiency, amongst others. The Bank can assist the
Government and EU in structuring appropriate financial instruments that combine EU grants
with commercial financing to improve EU funds absorption, mobilise additional commercial
resources to cover existing infrastructure gaps and improve the efficiency and sustainability of
the investment projects. In addition, JASPERS has helped Bulgaria develop significant
infrastructure projects, including municipal transport projects which have been financed by
the Bank.
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In order to support Bulgaria in its absorption of EU funds, the Government requested all three
major IFIs – the World Bank, the European Investment Bank and the EBRD – to enter into
Memoranda of Understanding to create frameworks for the provision of advisory assistance
on key policy reforms. The three institutions have initiated a regular cooperative dialogue and
are working to ensure that advisory initiatives are coordinated and based on the particular
expertise of each institution. Major policy dialogue in the areas of energy, water, transport
and financial sector reforms requires close cooperation between international and domestic
partners.
The Bank expects to continue an active dialogue on private sector reform alongside the IFC
and the Black Sea Trade and Development Bank (BSTDB), and will likely co-finance projects
with these institutions on a case by case basis. To date, EIB’s focus in Bulgaria has centred on
large infrastructure, SME/Mid-Cap credit lines as well as co-financing with the EU for
regional development projects. The Bank can co-finance alongside EIB for both national and
municipal infrastructure, as well as in selected cases, for private borrowers. The two
institutions provided joint financing to support the glassware producer Sisecam. The Bank has
also been working with EIF to put in place a mezzanine capital fund for mid-size companies
with growth opportunities. IFC is less active, averaging roughly one investment per year
across a range of sectors – not all of which have signed.
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ANNEX 1 – POLITICAL ASSESSMENT
Bulgaria is committed to and applying the principles of multiparty democracy, pluralism and
market economics in accordance with the conditions specified in Article 1 of the Agreement
Establishing the Bank.
The constitutional and legislative framework for a pluralistic parliamentary democracy is in
place. The separation of powers and checks and balances in the political system, guarantees
for fundamental rights and the protection of minorities, and for a meaningful role of civil
society are largely in line with international and European standards, as assessed by the
Council of Europe. Elections are conducted in a manner deemed by the OSCE and the
Council of Europe to be free and in line with international standards.
In the period since the adoption of the previous Strategy, Bulgaria has made further progress
in all areas of democratic reform, facilitated by the deepening of its integration into the
European Union (EU), which the country joined in 2007. At the same time, certain challenges
remain in the area of the rule of law. Despite the fact that necessary legislative and
institutional frameworks have been put in place, some gaps remain. According to the
European Commission (EC), existing weaknesses relate to failings in the application of the
law, as well as some structural weaknesses. The Cooperation and Verification Mechanism,
which was established by the EC in 2007 in order to assist Bulgaria in overcoming
shortcomings in the areas of judicial reform, the fight against corruption and organised crime,
initially envisaged for three years, is still in place eight years later.
Free Elections and Representative Government
Free, fair and competitive elections
The existing legal framework provides a sound basis for democratic elections, as assessed by
the OSCE’s Office for Democratic Institutions and Human Rights (OSCE/ODIHR). The legal
framework has benefited from a series of reforms over the years. The most recent changes
included amendments to the Electoral Code adopted in the beginning of 2013 and in spring
2014.
However, certain aspects of the legislation could benefit from further refinement. According
to OSCE/ODIHR’s view, which is shared by the Council of Europe's European Commission
for Democracy through Law (Venice Commission), individuals that identify themselves as
belonging to minorities should be allowed to use their mother tongue in an election campaign,
and election material could be provided in minority languages. The OSCE/ODIHR has also
recommended additional efforts that are needed to address the persistent issue of allegations
of vote-buying in order to restore confidence in the electoral process, as well as to review the
provisions on delineation of constituencies to ensure compliance with the principle of equal
suffrage2.
2
OSCE/ODIHR, Early parliamentary elections 2013, Election Assessment Mission, Final report, 25 July 2013, p.24;
OSCE/ODIHR, Early parliamentary elections 2014, Election Assessment Mission, Statement of Preliminary Findings
and Conclusions, 6 October 2014, p.4; and Joint Opinion on the Draft Election Code of Bulgaria by the Council of
Europe’s European Commission for Democracy through Law (Venice Commission) and OSCE/ODIHR, 24 March
2014
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Under the Constitution, the parliament (National Assembly) is a unicameral body consisting
of 240 MPs elected under a proportional system. Previous elections in the country were
assessed as “free and fair” by observers from the ODIHR, as well as by other competent
international observers. All general elections since the beginning of the transition have
brought to power different political parties than those in power at the time of the elections.
Assessing the last general elections, which took place in October 2014, international
observers stressed that they were held in a competitive but calm environment, with respect to
fundamental freedoms, and were managed professionally. At the same time, they also noted
weakened public confidence in the electoral process and certain electoral and political fatigue
due to the fact that these were the second early elections in less than 18 months3.
Separation of powers and effective checks and balances
The constitutional and legislative framework for a parliamentary democracy – underpinned by
the separation of powers and checks and balances in the political system, an independent
legislature and well established procedures of legislative oversight in prescribed domains of
decision-making – is in place in Bulgaria and is in line with international and European
standards. The scope of powers of the legislature to hold the government to account and to
exercise parliamentary oversight is largely in line with international standards. An appropriate
system to ensure the accountability of elected officials is in place.
The functioning of the parliament is in line with democratic practices. The government
participates in weekly Q&A sessions with members of parliament (MPs). They also respond
in writing to enquiries from MPs. Both Ministers and Prime Minister participate in the
interpellations requested by the parliamentary opposition, as well as in hearings at the
parliamentary committees. The parliamentary committees and MPs exercise their right to
initiate and amend legislation.
Effective power to govern of elected officials
Bulgaria has established institutional, legal, and financial arrangements for elected officials to
exercise effective power to govern, which are not constrained by any non-democratic veto
powers or other undue influences.
Civil Society, Media and Participation
Scale and independence of civil society
There is a satisfactory legal framework for civil society organisations. There is a diverse
network of institutions responsible for cooperation between the government and CSOs.
The right to form trade unions and their freedoms are enshrined in the law and respected in
practice. The right to strike is recognised by the Labour Code.
Independence and pluralism of media operating without censorship
3
OSCE/ODIHR, Early parliamentary elections 2014, Election Assessment Mission, Statement of Preliminary Findings
and Conclusions, 6 October 2014
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Bulgaria has a pluralistic media environment, which includes public and private broadcasters
and which offers citizens a wide range of political views. Pluralism in the media, which
operate freely and without censorship, has increased overall in recent years. A legal
framework is largely in place and in line with international standards. At the same time, media
ownership and funding lack transparency. Growing concentration of media ownership in the
hands of a restricted circle of businessmen, as well as the presence of off-shore companies in
the media market, give rise to concerns among the public about undue economic pressure on
the independence of media.
The public broadcasters – Bulgarian National Television (BNT) and Bulgarian National Radio
(BNR) – have three national television and three radio channels. Commercial television
includes three main national stations. Television remains the predominant source of public
information, since circulation of printed media is relatively narrow. Recent years have
witnessed a rapid growth in internet access. According to the International
Telecommunication Union (ITU), the percentage of the population with internet access grew
from 5.37 per cent in 2000 to 55.15 per cent in 2012.4 Social media is playing an increasingly
important role. In 2012, 35.8 per cent of Bulgarians were active Facebook users.5
Multiple channels of civic and political participation
Multiple channels of civic and political participation are in place. The system of public
consultations is largely in place, although its rules are not always enforced.
Freedom to form political parties and existence of organised opposition
The freedom to form political parties is guaranteed by the Constitution and implemented in
practice, as highlighted by the existence of a significant and diverse opposition able to
campaign freely and oppose government initiatives. 18 political parties and 7 coalitions
participated in the last general elections in Bulgaria. The number of parties represented in the
newly elected parliament has doubled as compared to the composition of the previous
parliament.
Rule of Law and Access to Justice
Supremacy of the law
Necessary legislative and institutional safeguards for the supremacy of the law are in place.
The Constitution recognises the right of any individual to have recourse to the judicial system to
defend his or her rights. Citizens have the right to a free and fair trial, and are free from
arbitrary arrest or detention. In the years preceding accession to the EU, Bulgaria made
progress in aligning its judiciary with European standards and legislation. The work has
continued since then.
Independence of the judiciary
The independence of the judiciary is guaranteed by the Constitution and key safeguards are in
place to ensure its impartiality. Constitutional amendments of 2007, in particular, set the
framework for judicial independence. Judges can be dismissed only if they have committed a
4
5
ITU (2012) http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx
Internet World Stats (2012) http://www.internetworldstats.com/europa.htm
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crime or become incapable of carrying out their duties. Their work is overseen by the independent
Supreme Council of the Judiciary. Judges may not be members of political parties and they enjoy
the same immunities as members of parliament.
According to the EC’s comprehensive assessment of the progress achieved since 2007, the
efforts undertaken by Bulgarian authorities have not yet led to significant improvements in
judicial accountability and “questions remain about judicial independence”.6 The public
perception of the independence of the judiciary remains low.
Government and citizens equally subject to the law
There has been progress in access to justice for citizens. However, the process of dispensing
justice in Bulgaria is still marked by serious shortcomings. The courts are overburdened with
work and take a long time to deliver their judgments. Persistent delays in court proceedings
compromise the transparency and effectiveness of the judicial process and may undermine
access to justice.
Effective policies and institutions to prevent corruption
According to the EU Anti-Corruption Report, published by the EC in 2014, “corruption remains a
serious challenge in Bulgaria at different levels”7. According to the latest (2014) Transparency
International Corruption Perception Index (CPI), Bulgaria occupies the 77th place out of 175
countries, which is among the lowest positions among EU countries and in the region of south
east Europe8.
When Bulgaria joined the EU in 2007, the EC established a Cooperation and Verification
Mechanism (CVM) designed to help Bulgaria address the shortcomings in the area of the rule
of law, focussing particularly on the fight against corruption. In 2012 the EC produced an
assessment of the progress so far. It concluded that despite a significant progress, which
included establishing necessary legislative and institutional frameworks, serious shortcomings
remain in the area of corruption, particularly in the fight against high-level corruption. There
has been lack of conclusive trials for high-level corruption cases, which are processed very
slowly and have a disproportionately high number of acquittals. Public procurement remains a
particularly high risk area in terms of corruption. The CVM, initially envisaged to run for
three years after Bulgaria joined the EU, is still in place eight years after.
At the same time, the latest report under CVM, issued in January 2015, hailed the recent
informal evaluation of the impact so far of the anti-corruption strategy, which has been
undertaken by the new Bulgarian authorities, as an “important contribution” and an “honest
assessment of the shortcomings”. Corruption remains a serious issue in Bulgaria.9 The
forthcoming full evaluation of the anti-corruption strategy should provide a useful analysis of
the challenges and help in starting tackling the problems.
According to the Council of Europe’s Group of States against Corruption (GRECO), the
necessary legal framework to prevent corruption is largely in place, with some room for
improvement, but there are weaknesses in investigative and judicial practice.10 In its
6
Report from the Commission on Progress in Bulgaria under the CVM, 18.7.2012, p.5
EU Anti-Corruption Report, Report from the Commission to the Council and the European Parliament, 3.2.2014, p.14
8
Transparency International, Corruption Perceptions Index (CPI), December 2014
9
Report from the EC on Progress in Bulgaria under the Cooperation and Verification Mechanism, 28.01.2015, p.7
10
http://www.coe.int/t/dghl/monitoring/greco
7
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Evaluation Report on transparency of party funding, adopted in 2010, GRECO noted a
number of shortcomings and issued 16 specific recommendations. In its compliance report
adopted in October 2012, GRECO concluded that the Bulgarian authorities implemented or
dealt with two-thirds of the recommendations in a satisfactory manner.11
Civil and Political Rights
Freedom of speech, information, religion, conscience, movement, association, assembly and
private property
Overall civil and political rights continue to be well respected in Bulgaria. The last assessment
of Bulgaria’s track record in the area of human rights in the framework of the United Nations
Universal Periodic Review (UPR) was adopted in 2010. The top two recommendations for
Bulgaria included rights of the child (24.09 percent of all recommendations) and minorities
(21.17 percent). Bulgaria accepted 87.59 per cent of the recommendations made in the course
of the review process.12
Bulgaria is a signatory to major international human rights instruments. The Constitution
guarantees basic freedoms and rights of citizens recognized in international law. Freedom of
speech, information, religion and conscience, movement, association and assembly are
therefore fully guaranteed. The Constitution and relevant laws prohibit discrimination on
grounds of sex, race, language, religion, national or social origin, property or social status.
Property rights are generally respected and protected.
Political inclusiveness for women, ethnic and other minorities
According to the last census conducted in 2011, ethnic Bulgarians were 84.8 per cent of the
population. Among minorities the largest groups are ethnic Turks (8.8 percent of the
population), and Roma (4.9 per cent); other ethnic minorities fall below one per cent of the
population.
The Constitution provides for the right of individuals to self-identification. However, it does
not make a clear reference to ethnic minorities. Furthermore, the Constitution prohibits the
formation of political parties on an ethnic basis. According to the opinion of the Advisory
Committee on the Framework Convention for the Protection of National Minorities, the
legislation prohibiting formation of political parties on ethnic basis can lead to unwarranted
limitations of their rights.13 The provision of the Electoral Code regarding the use of
Bulgarian language only in the election campaign contradicts OSCE commitments that refer
to the right to use minority languages in the electoral process.14
Roma continue to face various problems and their general living conditions and level of
inclusion is below average. Efforts have been made in various areas in recent years in order to
improve the situation. In 2012, Bulgaria adopted a National Roma Integration Strategy and
respective Action Plan.
11
GRECO, Compliance Report on Bulgaria, 19 October 2012
United Nations, Universal Periodic Review (UPR), Bulgaria, 2010, and UPR Info Statistics
13
Advisory Committee, Council of Europe Framework Convention for Protection of National Minorities, Opinion on
Bulgaria, 27 May 2004
14
OSCE/ODIHR, Early parliamentary elections, Election Assessment Mission, Final report, 25 July 2013, and
OSCE/ODIHR, Early parliamentary elections 2014, Election Assessment Mission, Statement of Preliminary Findings
and Conclusions, 6 October 2014, p.10
12
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The key legislative elements for gender equality are in place in Bulgaria. Women are active at
the grassroots level and have a few high-profile representatives at the national level. The share
of women in the national parliament has increased from 20 per cent in 2009 to 25 per cent in
2014. One third of the members of the current Bulgarian government are women.
Although the Constitution and relevant laws stipulate that equal opportunities and equal
treatment of women and men should be ensured as regards pay and other income arising from
employment relationship, on average women in Bulgaria earn more than 10 per cent less than
men with equal level of professional qualifications.
Freedom from harassment, intimidation and torture
Constitutional guarantees against harassment, intimidation, and torture are in place and are
largely upheld in practice.
A delegation of the Council of Europe’s European Committee for the Prevention of Torture
and Inhuman or Degrading Treatment or Punishment (CPT) carried out a periodic visit to
Bulgaria from 24 March to 4 April 2014 to assess progress made since the previous visit and
the extent to which the Committee’s recommendations were implemented, particularly in the
areas of police custody and imprisonment, and the treatment of juveniles in penitentiary
establishments. The previous report by the CPT, while acknowledging the efforts made by the
Bulgarian authorities to improve the conditions in prisons, noted that they remained difficult
and also noted allegations of physical ill-treatment in the penal institutions.15
15
Council of Europe, European Committee for the Prevention of Torture and Inhuman or Degrading Treatment or
Punishment (CPT), 4 December 2012, p. 11ff.
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ANNEX 2 – SELECTED ECONOMIC INDICATORS
2006
2007
Output and Expenditure
GDP
Private consumption
2008
2009
2010
2011
2012
2013
(Percentage change in real terms, s.a.)
6.5
6.9
5.8
-5.0
0.7
2.0
0.5
1.1
8.6
11.3
3.7
-6.4
0.5
1.8
3.9
-2.3
Public consumption
3.8
1.3
-1.0
-7.7
2.1
1.8
-1.0
2.8
Gross fixed capital formation
13.0
13.1
22.0
-17.4
-18.3
-4.6
2.0
-0.1
Exports of goods and services
7.7
19.6
2.5
-11.7
17.2
11.5
0.8
9.2
Imports of goods and services
15.9
22.6
4.9
-21.5
4.1
8.5
4.5
4.9
5.2
9.2
-8.7
-13.1
5.2
-0.5
5.9
-0.4
Industrial gross output
Labour market
Gross average monthly wages (end-year)
Real LCU wage growth
(Percentage change)
13.0
22.4
22.9
8.9
8.6
8.2
4.1
7.6
…
…
…
…
…
…
…
…
11.3
12.3
12.9
(In per cent of labour force)
Unemployment rate
8.9
6.9
5.6
6.8
Prices
10.2
(Percentage change)
Consumer prices (annual average)
7.4
7.6
12.0
2.5
6.0
3.4
2.4
0.4
Consumer prices (end-year)
6.1
11.6
7.2
1.6
4.4
2.0
2.8
-0.9
General government balance
3.3
3.3
2.9
-0.9
-4.0
-2.0
-0.5
-1.9
General government revenues
37.0
38.2
38.0
35.3
32.7
32.4
34.0
35.5
General government expenditure
29.2
29.0
29.1
31.1
32.4
30.5
29.8
32.3
General government debt
23.4
18.6
15.5
15.6
14.9
15.4
17.5
16.4
Fiscal Indicators
(In per cent of GDP)
Monetary and Financial Sectors
(Percentage change)
Broad money (M2, end-year)
26.9
31.3
8.9
4.2
6.3
12.2
8.4
8.9
Credit to the private sector (end-year)
19.4
72.4
32.3
2.3
2.5
5.4
5.0
0.1
Non-performing loans ratio
2.2
2.1
2.4
15.0
16.6
16.9
(In per cent of total loans)
Interest and exchange rates
6.4
11.9
(In per cent per annum, end-year)
Local currency deposit rate
3.2
3.7
4.4
6.2
4.1
3.4
3.1
2.4
Foreign currency deposit rate
2.8
3.5
4.8
4.5
3.1
3.3
3.3
2.2
Lending rate
8.9
10.0
10.8
11.3
11.1
10.6
9.7
9.1
Interbank rate (end-month)
3.6
5.4
6.4
2.8
2.1
1.8
0.5
0.3
Policy rate (Rediscount rate)
3.3
4.6
5.8
0.6
0.2
0.2
0.0
0.0
Exchange rate (end-year)
1.49
1.33
1.39
1.36
1.47
1.51
1.48
1.42
Exchange rate (annual average)
1.56
1.43
1.34
1.41
1.48
1.41
1.52
1.47
(RON per US dollar)
External sector
(In per cent of GDP)
Current account
-19.7
-28.9
-25.7
-8.5
-1.5
0.1
-1.1
2.1
Trade balance
-24.3
-26.1
-27.3
-14.3
-10.0
-7.8
-11.5
-8.8
Merchandise exports
44.6
42.2
41.9
32.3
42.4
50.5
50.8
54.1
Merchandise imports
68.9
68.3
69.2
46.6
52.4
58.3
62.3
62.9
Foreign direct investment
23.4
32.7
15.2
10.9
4.0
9.2
-3.0
-0.3
Gross reserves, excluding gold (end-year)
32.3
37.5
31.5
33.9
31.7
27.3
35.0
33.6
90.0
External debt stock
77.1
91.0
102.2
104.8
100.7
90.5
92.1
Public external debt
13.8
9.7
6.9
7.8
7.8
7.0
8.7
8.3
Private external debt
63.3
81.3
95.3
97.0
92.9
83.6
83.4
81.6
4.9
5.3
6.4
6.3
(In months of imports of goods and services)
Gross reserves, excluding gold (end-year)
4.8
Memorandum items
7.4
6.7
5.3
(Denominations as indicated)
Population (mid-year, millions)
7.7
7.5
7.5
7.4
7.4
7.3
7.3
7.3
GDP (in billions of leva, nominal)
52.5
62.4
71.3
70.6
71.9
78.4
80.0
80.3
GDP per capita (in USD, nominal)
4,370.6
5,783.0
7,115.9
6,738.1
6,580.5
7,588.8
7,198.0
7,498.8
Share of industry in GDP (in per cent)
30.4
31.2
30.2
30.9
27.8
30.0
30.1
27.9
Share of agriculture in GDP (in per cent)
7.4
5.6
7.2
5.1
5.1
5.4
5.4
5.5
FDI inflow (in billions of USD)
7.9
13.9
10.3
3.9
1.9
2.1
1.6
1.9
External debt - reserves (In US$ billion)
External debt/exports of goods and services
(per cent)
16.2
26.3
34.7
32.9
33.1
30.0
30.1
33.1
127.5
159.4
165.0
227.1
180.1
128.9
144.9
138.3
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ANNEX 3 - ASSESSMENT OF TRANSITION CHALLENGES
Rating for:
Market
Structure
Rating for
Market
Institutions
Remaining Key challenges:
CORPORATES
Agribusiness
Small
Medium
Manufacturing and Services
Small
Medium
 encouraging land consolidation to facilitate economies of
scale and thus productivity improvements
 expanding the legal framework for effective, marketbased financing tools to ease access to finance to
primary agriculture
 improving and developing grain infrastructure
supportive of effective agribusiness development
(primarily irrigation systems, warehouse facilities, grain
terminal and ports along Danube River and Black Sea)
 reforming the regulatory regime in order to improve the
business environment, including with respect to dealing
with permits and licences, labour contracts and
insolvency procedures;
 reforming the education system and vocational training
policies in order to address the needs of the business
community
 providing adequate incentives for efficient use of energy
and water and gas as well as for R&D investments
conducive to productivity increase.
Real Estate
Medium
Small
 further increasing the supply of modern sustainable
commercial property
 further increasing the focus on energy efficiency and
sustainability.
ICT
Small
Small
 continuing to develop the telecommunications
infrastructure (broadband internet)
 increasing competition in the fixed segment.
ENERGY
Natural Resources
Small
Medium
Sustainable Energy
Large
Small
 taking steps to bolster the financial position of
Bulgartransgaz and complete the restructuring and
commercialisation of the gas sector
 achieving technical upgrades in the coal sector
 taking steps towards the privatization of coal assets
 reinforcing the governance and transparency in the
mining sector.
 strengthening legal and institutional framework for
supporting sustainable energy
 refurbishment of the inefficient capital stock in the
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Rating for:
Market
Structure
Rating for
Market
Institutions
Remaining Key challenges:
economy to reduce energy intensity
 further project and capacity development for climate
change initiatives improving collections in the sector.
Power
Large
Medium
 strengthening the independence of the regulator
 increasing competition in both the wholesale and retail
energy markets
 removing end user price regulation and cross subsidies
 improving cross border trading
 introducing cost reflective tariffs for end consumers
 increasing cross border trade.
INFRASTRUCTURE
Water and wastewater
Medium
Small
Urban Transport
Small
Medium
 full decentralisation of water infrastructure to local
authorities
 improvements in the predictability of regulatory practices
 introduction of good contractual arrangements, where
utility companies are accountable towards their local
community and customer base.
 more integrated urban transport planning, including
adequate implementation of a robust Public Service
Contract structure, consolidation of the small operators,
implementation of the EU compliant legislation and
regulation for the urban transport sector
 contractual improvements related in particular to the
tariff setting which is controlled by the local
governments; and strengthening the role of private sector
in some cities through the implementation of new or
revised public service contracts in order to make
operators creditworthy from a contractual standpoint. Roads
Medium
Medium
 greater independence for the road agency
 better articulated use of road user charges
 development of road PPPs
Railways
Small
Medium
 improvements in financial mechanisms including finetuning PSO and access charge contracts
 further enhancement of PSP and competition in the
market
 further commercialisation and restructuring of
incumbent railway companies
 improvements in regulation.
FINANCIAL INSTITUTIONS
Banking
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Rating for:
Market
Structure
Small
Rating for
Market
Institutions
Medium
Remaining Key challenges:
 consolidating the market in order to address the capital
constraints faced by some smaller players and some
foreign owned subsidiaries
 developing local funding opportunities through bond
issuance and syndicated lending
 improving bankruptcy legislation.
Insurance and other financial services
Small
Small
 improving insurance supervision.
Micro, Small and Medium-sized enterprises
Small
Medium
 developing limited funding available to SMEs and
support for newly established and small growing firms  expanding the coverage of credit information services
and establishing a geographically unified collateral
registry.
Private equity
Medium
Small
Capital Markets
Medium
Small
 developing additional investment strategies
 developing local investor base.
 developing money market benchmarks and forward
markets
 expanding corporate bond market.
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ANNEX 4 – LEGAL TRANSITION
This annex offers an analysis of legal sectors directly relevant to the Bank’s investment
strategy for the forthcoming period. It is based on the research and assessments conducted by
the EBRD Legal Transition Programme.16 First, the annex will consider laws and regulations
supporting competitiveness, then a number of specific legal topics relevant to the
infrastructure sector.
Corporate Governance
The Commercial Act enacted in 1991 (and amended several times thereafter) is the main
legal text setting forth the rules on the establishment and operation of companies. In
addition, a National Corporate Governance Code was enacted in October 2007 and amended
in February 2012. The Code contains recommendations to Bulgarian companies on the
application of good corporate governance practices and principles. The Code is to be
implemented according to the so-called “comply or explain” principle.
The most recent EBRD assessment on corporate governance showed Bulgaria being in
“Medium Compliance” with the OECD Principles of Corporate Governance. The assessment
revealed challenges especially in the “responsibilities of the board” sector. The framework
has been improved by the progressive transposition of the Acquis Communautaire. At 18
January 2012 (last data available online),17 Bulgaria appears to have duly transposed 90 per
cent of all Acquis in the field of company law. However, while the legal framework “on the
books” has improved, still some gaps exist. In particular, the regulator may wish to be more
vigilant on how companies “comply or explain” with the national corporate governance code
and should develop a model corporate governance disclosure template that companies can
adopt for their “comply or explain” disclosure.
Insolvency/ Bankruptcy and Restructuring
The Commercial Act is also the main source of legislation for insolvency matters. There is
one bankruptcy procedure, which can, in theory, result in either the liquidation of a business
or in its rescue pursuant to a reorganisation plan. In practice, the bankruptcy framework is
overwhelmingly liquidation focused and very few reorganisation plans are proposed and/or
succeed. Judicial reorganisation under the bankruptcy provisions of the Commercial Act is
only available for businesses that are technically insolvent and is not, as is common now in
other jurisdictions, available also for businesses that are at risk of insolvency. The law
provides that the creditors’ committee may vote on a reorganisation plan. Nevertheless the
formulation of the reorganisation plan is debtor driven and occurs late in the bankruptcy
proceedings, once the date of the initial insolvency has been determined and creditors’ claims
have been submitted. There is no mechanism for agreement of an accelerated or prepackaged reorganisation plan under the Commercial Act. A recent European Commission
recommendation on insolvency, issued in March 2014, sets out a number of principles to be
reflected by Member States, including Bulgaria, in their national insolvency/ bankruptcy
legislation. An accompanying press release from the Commission cited Bulgaria as one of
the EU countries that currently fail to promote the early judicial reorganisation of businesses.
16
17
See www.ebrd.com/law
http://ec.europa.eu/internal_market/company/official/index_en.htm
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In addition to the issue of the weak judicial reorganisation procedure referred to above,
concerns were expressed by stakeholders during policy dialogue meetings in 2014 about the
general process for admission and approval of claims in bankruptcy, including the admission
of bogus unsecured claims and failure by certain debtors to list or notify existing creditors of
the bankruptcy proceedings; underrepresentation of secured creditor interests in the creditors’
committee; lack of cooperation and information sharing by debtor’s management and
shareholders with the appointed trustee or receiver and inability to compel their assistance
with the office holder; and an overall lack of transparency and information-sharing during the
judicial process with creditors.
The bankruptcy system relies on strong judicial control. Although creditors are free to select
the insolvency office holder and determine his/ her remuneration, the appointee is required to
submit monthly reports to the Court and to obtain permission from the Court to carry out key
tasks in the administration of the bankruptcy case.
The Commercial Act was reformed in 2013 to limit the previously open-ended claw back
provisions, which had caused significant legal and commercial uncertainty for local creditors.
Both the EBRD and the IMF contributed their views and international experience to the
reform debate and advocated the importance of clearer, more balanced provisions.
Going forward, Bulgaria should examine how it could strengthen its judicial reorganisation
procedure by creating a wider entry point for debtors at risk of insolvency and promoting a
faster track process. Treatment of creditors within the bankruptcy process should also be reexamined to ensure that there is sufficient protection of genuine creditors from bogus claims
and greater transparency of information provided to all creditors.
Contract enforcement / judicial capacity
Bulgaria’s judiciary comprises courts of general jurisdiction dealing with all civil (including
commercial) and criminal matters, as well as administrative courts. Commercial matters are
brought before either regional or district courts, depending on the value and type of dispute,
with appeals lying generally to courts of appeal and the Supreme Court of Cassation. At
courts of all levels, commercial matters are heard by specialised commercial panels
(divisions). The State Judicial Council is responsible for judicial appointments and discipline
and for the overall management of the judiciary. The National Institute of Justice is
responsible for professional training of judges; it conducts a mandatory initial judicial
training programme, as well as continuous training courses for judges and magistrates.
Continuous training embraces modules of commercial law and related disciplines such as
accounting skills, an area developed with EBRD assistance which has since become a model
for a regional training programme.
Public confidence in the judiciary remains low, and concerns persist about lack of judicial
independence and corruption. Bulgaria remains subject to the Cooperation and Verification
Mechanism (CVM), established by the European Commission when Bulgaria joined the
European Union in 2007 in order to assess the commitments made by Bulgaria in the areas of
judicial reform up accession. The Commission’s most recent progress report noted
improvements in appointment procedures and reducing judicial backlogs, however overall
progress was assessed to be fragile, with more work remaining to be done. Controversies
have continued to arise, such as judicial appointments having to be cancelled due to integrity
issues, and revelations about political influence on judges in particular cases. Further, there
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remain rather few cases in which cases of corruption have been brought to conclusion in
court.
The EBRD Judicial Decisions Assessment found court judgments in commercial law matters
in Bulgaria to be generally predictable and of reasonable technical quality. Case law is
accessible to the public through a centralised online system for the publication of judgments
of all courts. Guidance notes issued by the superior courts are mandatory for all lower courts,
which contributes to a certain degree of uniformity of jurisprudence. The ability of
practitioners to request such guidance through the Bar Association allows the guidance to
tackle on controversial practical matters. Enforcement of court judgments has improved
recently, however the rates of enforcement remain quite low, particularly in relation to
disputes with government authorities, which are within the exclusive competence of the state
agents. The speed of justice remains a concern, although improvements have been achieved,
in particular through introducing a “fast track” procedure for relatively simple cases.
The focus of Bulgaria’s judicial reform efforts in the medium term should be on
implementing all recommendations of, and making substantial progress under the CVM, such
that the mechanism can ultimately be discontinued. This would represent a substantial
achievement and instil greater public and investor confidence in the reliability of the court
system.
Public-Private Partnerships (PPP)/Concessions
Bulgarian PPP/Concessions legislation is centred on the Concessions Act of 2006 (the
“Concessions Act”) and the recent Public-Private Partnership Act of 2012 (the “PPP Act”),
supported by a number of implementing regulations.
The Concessions Act regulates various forms of concessions such as BOT (Build-OperateTransfer) and some of the derived models, including BOO (Build-Own-Operate) and BOOT
(Build-Own-Operate-Transfer). Concessions can be granted for the majority of sectors,
through a competitive procedure and in a flexible project agreement framework. Application
of fair and transparent tender selection process is mandatory under the law, as well as proper
remedies for breach are available.
However, the Concessions Act does not deal with non-concessionary forms of PPPs, which
has been deemed a substantive bottleneck for development and implementation of a wider
range of PPP projects, in particular PFI-type projects in “non-cash-generating” sectors.
Addressing this gap has been the major goal of the government in promulgating the PPP Act
in 2012.
The PPP Act regulates contracts where public sector finance provision is restricted or where
consumer fee is insufficient to attract private sector interest. The PPP Act therefore allows
Private Finance Initiative-type of projects and overall creates quite comprehensive framework
for the PPP projects. In particular, the PPP Act defines sectors in which PPP projects can be
developed, including urban and social infrastructure, and guides through the principles of
distribution of risks between the public and private partner. The PPP Act further sets forth
rules of selecting a private partner to a PPP project and governs the key terms of a PPP
contract. The PPP Act employs several modern instruments, such as unsolicited proposals
and institutional forms of PPP.
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Despite the significant progress brought by the PPP Act, it has provided a major legal
obstacle to implementing most PPPs in the country with the addition of Article 18a to
Chapter Two of the Concession Act which extends the liability of the project company
concessionaire under the Concession Law to its shareholders contrarily to the basic principle
of project financing.
The PPP-based models have been used in transport and municipal sector with a number of
new projects foreseen in the pipeline in transport, energy and social infrastructure.
Public Procurement
The current Public Procurement Act was adopted in 2004 and has undergone 25 amendments
since. The Bulgarian legislation follows principles of EU public procurement directives and
covers all public contracts in state and utilities sector. In the EBRD 2010 assessment
Bulgarian law and practice scored medium-to-high compliance with international standards
and it was found that several transparency safeguards and efficiency instruments were not
incorporated in legislation. The 2010 assessment revealed that local procurement practice is
outdated and bureaucratic, electronic communication is not mandatory by law and in not used
in practice and frequent changes to the public procurement laws cause severe implementation
problems. Some improvements to the public procurement legislation were recorded by the
EBRD review completed in 2012, but overall Bulgarian public procurement framework is in
a need of reform to meet standards of the 2014 EU public procurement directives.
Bulgaria is currently developing an Implementation Plan of the National Strategy for
Developing the Public Procurement Sector in Bulgaria for the Period 2014 – 2016 with the
EU Commission, which includes a public procurement reform program. The public
procurement reform programme is based on implementing eProcurement procedures and
tools, according to the new 2014 EU Directives. The EBRD provides policy advice to
prepare and implement eProcurement reforms in Bulgaria, under the PISSA (Project
Implementation Support Service Agreement) signed with Bulgarian government in 2013.
To address current problems, the new legislation needs to be developed and adopted,
regulating all stages of the public procurement process in compliance with the 2014 EU
directives. The reform should aim to establish modern procurement procedures and a new
institutional framework, with eProcurement procedures and tools increasing transparency and
accountability of procurement decisions. The main policy recommendations include
introducing the following:
-
new procedural rules for transferring all public procurement methods to electronic
environment, as prescribed by 2014 EU Directives;
new procurement methods as proposed by 2014 EU Directives;
institutional structures for enabling eProcurement procedures and tools to be used by
all contracting entities for public procurement in state and utilities sector in the
country;
new institutional framework for regulatory and reporting obligations;
institutional framework for central purchasing, based on electronic purchasing and/or
framework agreements and e-catalogues and dynamic purchasing systems for low
value contracts.
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ANNEX 5 – EBRD AND THE DONOR COMMUNITY
The Bank has limited donor funding available in Bulgaria, but where possible will provide
technical assistance (TC) in Bulgaria in support of selected investment projects and policy
dialogue. TC is required in areas of municipal infrastructure and sustainable energy as well as
to support legal transition and strengthening capacities of public sector institutions. The Bank
will aim to engage donor funds, for instance the EBRD-ELENA (European Local Energy
Assistance) Facility, as well as its own resources to support this goal. The Bank will also
consider engaging with Bulgarian authorities on utilising EU Structural and Investment
Funds through financial instruments and EBRD advisory assignments.

Bilateral donors: grants will be sought from donors through their bilateral donor
accounts administered by the EBRD, although availability of such funds is likely to
continue to be scarce.

The EU: The Bank will strive to develop new business opportunities by maximising EU
co-financing opportunities in Bulgaria. Under the 2014-2020 multiannual financial
framework, the EU is committed to a more effective use of the European structural and
investment funds, notably through an increase of the use of structured financial
instruments. The Bank will aim to engage with the EU, Bulgarian authorities and other
partners in an effort to devise new financial instruments and to secure co-financing
synergies with EU financial facilities. 
Kozoduy International Decommissioning Support Fund (KIDSF) was established at
the EBRD in 2001 with the purpose of financing projects in support of the
decommissioning of Kozloduy Nuclear Power Plant Units 1-4, projects in the energy
sector consequential to the early closure of the four nuclear units as well as energy
efficiency measures. As part of the EU accession process Bulgaria agreed to close Units
1 and 2 in 2003 and Units 3 and 4 in 2006. The European Community recognised the
financial consequences of the early closure and committed €870 million for the
Kozloduy decommissioning programme in the period from 1999 to 2013. In 2013, the
EU decided to extend its assistance programme to 2020 and committed an additional
€293 million. As of the end of 2013 the overall contributions to KIDSF from the EU and
ten governments reached €882.647 million, of which €867.7 million was from the EU.

EBRD Shareholder Special Fund (SSF) endowed by the Bank’s net income. The SSF
is a complementary facility to donor resources and will provide TC and non-TC support
in areas where there is a shortage or lack of support, but where it remains as a priority
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